Brum bankrupt: the biggest council in Europe is the sixth English local authority to declare itself broke since Croydon in 2020
After the latest local authority’s finances crashed and burned, and with Michael Gove twiddling his thumbs doing nothing before the General Election, ANDREW FISHER, pictured right, looks at what needs to be done to fix local government in England
Councils in England have taken the brunt of austerity since 2010. This has resulted in the closure of local facilities – youth centres, libraries, centres for the retired – and huge cuts in services, even including to councils’ statutory provision, like social care and children’s services.
Just this week, the largest council in Europe – Birmingham City Council – issued a Section 114 notice, the legal declaration that the council is unable to balance its books.
Birmingham thus became the sixth English council to effectively declare itself bankrupt since Croydon’s ignominious crash in November 2020, following Northumberland, Nottingham, Slough, Thurrock and Woking.
In each case you can point to local failures. But the inescapable fact is that the Conservative government’s austerity has left councils in a precarious position – without the resilience to withstand local misjudgements, especially in the context of a wider economic downturn.
To date, not a single council in Wales or Scotland has collapsed. Local government is a devolved policy area – meaning it is the Welsh Labour Government and SNP Scottish Government that decide funding levels for their local councils (largely from within the block grant they receive from Westminster).
According to the Institute for Government, since 2010, councils in England have faced cuts in their resource spending of 21%. In Scotland, that figure is just 7%, in Wales it is 8%.
The Wales Audit Office and Audit Scotland continue to provide an external monitor of councils’ finances, which means better oversight and earlier intervention when problems emerge.
Neat summary: Andy Burnham’s right, of course
Current local government minister Michael Gove is reviving that function in England, with the quango, Oflog.
Yesterday, the Mayor of Greater Manchester, Andy Burnham, tweeted (or should that now be “Xed”?): “Labour councils have run out of money.
“Conservative councils have run out of money.
“The main underlying reason? National government’s disrespect for local government and failure to fund it. It’s gone on for decades under all parties but has hit new levels in the last one.”
He’s right. So what do we do about it?
Higher Council Tax?
It is a common misapprehension that Council Tax funds local services.
In the vast majority of councils, revenues from local taxation amount to a minority of overall council funding, with the majority of funding coming from central government grants.
In lower-income areas, council tax tends to be an even smaller share of revenue (more low-income households exempt), and central government grants have historically compensated for that – as they are, in part, based on an assessment of local needs.
Fund Croydon fairly: Mayor Perry didn’t listen to Croydon when he hiked Council Tax by 15%
Increasing Council Tax is not going to solve this crisis – and is likely to be least effective in poorer areas. As we know in Croydon, where Council Tax was hiked by 15% this year, it has done nothing to solve the crisis: the council is making more cuts this year and continues to rack up debt.
Even deeper cuts are scheduled in Croydon for next year, too.
Across the country, local authorities raised 30% more Council Tax, in real terms, in 2021-2022 compared to 2009-2010. This has been done as they seek to partly offset the significant loss of central government grant funding.
Through austerity, the Conservative Governments have outsourced tax increases to local councils.
People are paying more in Council Tax to get less in return. It’s a very bad deal.
Despite these rises in Council Tax, local authorities are still going bust. It is reckoned that a further 26 English councils are at risk of bankruptcy in next two years.
Bailout?
Croydon’s now non-executive Mayor, Jason Perry, told a Question Time event in Norbury on Tuesday night that he hopes the council will have a deal with government by the autumn. “We are still in discussion with the Government about how we get the finances in order,” he told his modest congregation assembled in Norbury Baptist Church.
The queue of debtors: this graphic, from the Guardian, illustrates that while Birmingham issued a S114 this week, there are plenty of other councils with similar debt burdens, potentially on the brink
We have heard all this before.
In March, when Perry was also – he insisted – in discussions with the Department for Levelling Up, Housing and Communities. Nothing came of it then, and since then Woking and Birmingham have joined the ranks of councils deep in debt and needing bailouts.
If Gove’s department grants a debt write-off, or partial debt write-off, to Croydon, that sets a precedent that a growing number of councils in England will demand to follow, potentially requiring billions from the Treasury.
Increase central government funding?
The crisis in English councils is in large part because of the cut to central government funding – the bulk of councils’ financing.
The Institute for Government reports that: “These grants were cut by 40% in real terms between 2009-2010 and 2019-2020, from £46.5billion to £28.0billion.”
Councils across England are receiving about £18.5billion a year less than they were in 2010. So if you were wondering why your local library has reduced opening times, your bins are only collected once every two weeks, or why the social care package your loved one relies on has been reduced or been taken away, that is why.
Is central government going to significantly increase funding for councils to restore local services and possibly save some councils from collapsing?
The NHS is in crisis, schools are underfunded (and the RAAC crisis has exposed the lack of capital spending, after a programme for rebuilding schools was axed by… Michael Gove).
It all tells the same story: cuts have consequences.
A Labour government looks unlikely to ride to the rescue of local government, since they have ruled out virtually every tax-raising measure to fund it and will inherit multiple other crises in public services and a near-stagnant economy.
Local government reorganisation?
Could councils be abolished?
Hospital pass: has Angela Rayner been set up to fail?
It sounds improbable, but a significant reorganisation and consolidation of councils could be on the cards. Northamptonshire Council went bust in 2018, and was abolished in 2021, along with eight district councils. In their place, two unitary authorities (North Northamptonshire and West Northamptonshire councils) were created. Two of the commissioners responsible for that plan now sit on the Croydon improvement panel, it might be worth noting.
Thurrock Council, a unitary council, issued a S114 notice in 2022 and is now being run by Essex County Council.
If the existing and incoming governments are unlikely to provide additional funding, then a significant reorganisation of local government structures seems the most likely outcome.
This week, in Keir Starmer’s reshuffle, Lisa Nandy was ingloriously demoted as Shadow Secretary of State covering local government.
Her replacement is Labour’s deputy leader Angela Rayner – who, if the polls stay steady, will soon have the reins of a department overseeing failing councils, failing levelling-up and a growing housing crisis. The Rugby World Cup begins in France this weekend, but through the whole of the tournament, we’re unlikely to see a hospital pass as painful as the one just delivered to Rayner.
- From 2015 to 2019, Andrew Fisher worked as the Labour Party’s Director of Policy under Jeremy Corbyn. He is a former chair of the Croydon Central Constituency Labour Party. Fisher is also the author of The Failed Experiment – and how to build an economy that works, and now writes regular columns for InsideCroydon
Andrew Fisher’s recent columns:
- We are witnessing the long, slow death of local government
- Croydon is in a right Pickles and it is easy to work out why
- The solution to Perry’s finance problem: Fund Croydon Fairly
- Driven to distraction, pro-car Tories are bad for your health
- Inside Croydon – as seen on TV! – has been delivering local community news since 2010. 3million page views per year in 2020, 2021 and 2022.
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ROTTEN BOROUGH AWARDS: Croydon was named among the country’s rottenest boroughs for a SIXTH successive year in 2022 in the annual round-up of civic cock-ups in Private Eye magazine
I expected ‘Red’ Andy to lay the blame at the Conservative government’s door but Birmingham has been mismanaged for decades. Unforgivably they refused for years and years to implement equal pay for women, even going so far as to fight the unions over this in court. Now the chickens have come home roost in the tens of millions. They catastrophically mismanaged an accounting system that’s never worked and is ten times over budget. They appear to have lost the proceeds of a controversial land sale. Why should we all pay to bail out these arrogant incompetents?
While old Faragists like you are perfectly ok in paying for the incompetent arrogance of KamiKwasi Kwarteng and Liz Truss, or the likes of Gillian “Fucking Good Job” Keegan and her husband, and bailing out the arrogant incompetents at Thurrock, and Woking, and Northamptonshire, and piss-poor Perry in Croydon.
Ha ha ha. Old? Yes. Is that a bad thing? Faragist? NO – I voted ‘remain’. Angry about Kwarteng-Truss? Yes! Birmingham’s court case may have been in 2012 but that’s irrelevant – the result was that they must now pay £760m to settle claims. The bill is equivalent to Brum’s entire annual spending on services and is growing by up to £14m each month. Shamefully the council fought the GMB Union who were simply asking for equal pay. The Oracle computer fiasco costs ballooned from £20 million to around £100 million
The equal pay court case was in 2012. Birmingham Council was run by a Conservative-Liberal Democrat coalition from 2004 to 2012.
Two birds with the one stone!
Andrew Fisher completely ignores the fact that each one of the council bankruptcies has been purely down to the incompetence of councils. Yes councils are being under funded by central government, but that isn’t the reason for any of rhe bankruptcies.
Did you not read the bit where it says: “In each case you can point to local failures”?
Given the number of local government officials, council finance directors and economists who all agree that cutting funding to local authorities by such a massive proportion is directly responsible for their financial collapse, you must be privy to information that has escaped those who do actually know what they are talking about.
Andrew has laid out a careful analysis of the problems, causes and possible alternatives regarding local government. A mature debate through these pages need to be had. It cannot be conceived that any council via its officers and elected representatives purposely or willfully set out to ‘ bankrupt ‘ their respective councils, instead national governments have passed legislative policies that directly affect local governments. The 1980 Housing Act (selling off council houses) and ‘care in the community’ are two policies out of many that come to mind and without additional funding.
Through these pages we also need to address the local government system appertaining to Croydon and London as a whole. I do believe the time has come to give powers to the Mayor of GLA very similar to ones given to the Leader of the GLC. Areas that would extend the GLA’s remit could include a London Wide Refuse Collection, London Wide Education Authority including SENs and Parks and Open Spaces thus disposing of the anachronistic ‘ Royal ‘ parks. Obviously delegation level input from London Boroughs would be needed.
The present system of Borough Council and GLA brings into focus areas of unnecessary clashes. For instance, London cabbies are licensed and are under the auspices of TfL yet the establishment of taxi ranks are under Borough control. There are GLA (TfL) controlled roads and Borough controlled roads and this can lead to clashes when one borough’s road closures impact the traffic levels of their neighbouring councils especially in Central London. A working consensus between the GLA and the Boroughs will be needed.
I hope my contribution will enable a mature debate amongst us and maybe further ahead an open meeting could be arranged to discuss these issues.
I think debate can be far focussed on a less specific level than you have provided. You make some interesting points, but they are irrelevant to the matter in hand. Simply you cannot continually cut back the income of any organisation for over a decade and expect it to retain any financial resilience when it has to face an unexpected event or is directed towards unsustainable policies by another body.
A pragmatic strategy has to exist in the first place before recovery can emerge. The services to meet existential needs have been cut back in the name of a half-baked ideological outlook to local government. This simply needs to change to start with.
It isn’t a particularly radical demand to call for the level of Government funding for local authorities to return to what it was in 2010 in real terms. This could be funded by various measures, some of which Andrew has referred to in other articles. For example the rate of Capital Gains Tax should be equalised with that for Income Tax and offshore tax havens should be tackled. As well as raising money for local services such measures would promote greater equality, which is so necessary in the UK today.
The difficulty is that neither the Tories nor Labour under Starmer are proposing these common sense measures. We need to build on local campaigns (like Croydon based NoTo15% and Fund Croydon Fairly) and vote for candidates who will genuinely promote policies in the interests of ordinary people.
These common sense policies are in the Green Party manifesto
So is “MG100 The Green Party wants to see a world without borders….” !
I don’t know a lot about council powers. But if they have the power to borrow, through bond issuance, and the power to raise taxes, and even the power to set local laws, then maybe it’s time to devolve completely from central govt who clearly cannot be trusted to provide the required funding.
What’s lacking is gutsy councillors with vision who have a plan to turn around some of these beleaguered local economies – that’s where we are really struggling! Finding the necessary talent with sufficient optimism, who aren’t corporatist nihilists like the rest of the Tory clan.
I read in this morning’s Guardian that apparently the GMB union is gathering evidence on up to 20 other councils with a view to pursue equal pay claims against those councils. Can anyone tell me if Croydon Council might be amongst that group of councils?
Please can someone give me some comfort that Croydonians won’t also find themselves on the hook in future having to fund such claims in future!
If you check our recent coverage of council matters, John, you’ll see that the GMB has been particularly active in Croydon and that it is, indeed, pursuing a number of instances where unfair practices have taken place.